Kroger: Expect the Unexpected

December 8, 2010
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by By Dan Malovany

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With today’s ever-fickle consumer, often only a fortunate few get lucky enough to predict what the next hot trend will be. While others ride the latest bandwagon, those executives who guess the future correctly often reap a windfall of rewards. All too often, however, life in the business world is full of “what ifs” and Monday-morning quarterbacking when it comes to anticipating what consumers will want next year, let alone five years from now. That’s why Dave Hipenbecker and the engineering team at Kroger took a different strategy when preparing for the $10.6 million building expansion of the company’s Country Oven Bakery, which will house a new high-speed cake line when the addition to the Bowling Green, KY, facility becomes operational next fall. The overall expansion will total $25 million including equipment purchases.

Instead of following the more conventional design, bid and build approach to the 64,000-sq-ft expansion, Kroger eliminated the bid part of the process and adopted the more versatile design-and-build model, according to Mr. Hipenbecker, Kroger’s director of network strategy and project engineering. In addition to greater flexibility, going directly from design to build allows the Cincinnati, OH-based company to react more quickly to changes in technology and shorten its overall time to market.

“The difference is you’re not waiting for all of the decisions to be finalized before you start,” he said. “When we started the building, we hadn’t purchased all of the equipment yet. As we continue through this project, we’re finalizing decisions on layouts and equipment.”

The design-build process, however, requires a substantial amount of due diligence, according to Mr. Hipenbecker. “There is always some risk that you might miss something significant. You still have to do all of your homework upfront,” he noted. “You still have to understand the scope of what you are doing. Those types of things don’t change, but it is so much faster in the long run to do design-build than use the design-bid-build process.”

CAPITAL OPPORTUNITY. Shortly after Calvin Kaufman became president of Kroger Manufacturing in 2008, Country Oven Bakery’s capital investment plan found itself on a fast track. In his role, Mr. Kaufman oversees the company’s 40 manufacturing plants, including Kroger’s seven bakeries and two frozen baked and sweet goods plants that supply cakes, donuts, cookies, bagels, muffins, crackers, snacks, rolls and frozen parbaked bread to nearly 2,500 supermarkets in 31 states under the Kroger, Dillons, Fred Meyer, Food 4 Less and King Soopers names.

After a network analysis, Mr. Kaufman saw that investing capital in the Bowling Green plant would provide one of the company’s biggest opportunities for improving product quality and alleviating some of the labor-intensive art of cake decorating at its in-store bakeries. Additionally, the bakery’s strategic location near interstates and highways, as well as the available land on 30 acres of property, made it a prime location for investment, according to Roger Bullion, general manager of the Country Oven Bakery for the past 10 years and a 39-year veteran of Kroger. In fact, enough land is available for Kroger to add yet another 64,000-sq-ft expansion down the line.

“Calvin made a decision to leverage our capital to increase capacity and reduce cost,” Mr. Bullion noted. “Our team looked for opportunities. This one bubbled up to the surface quickly, and he said, ‘Let’s move on it.’” For 30 years, the 176,000-sq-ft Bowling Green operation has anchored supply of frozen foods to the company’s in-store bakeries. Initially, Country Oven Bakery had 175 employees and produced mostly breads and rolls, but that has since changed dramatically. In fact, 50% of the products produced and sold today are different from what had been made when the facility first opened, Mr. Bullion said.

Currently, the plant’s 465 hourly employees work on three shifts six days a week to make more than 225 baked foods. At this time, the bakery houses eight lines that crank out bread, rolls, sweet goods, cookies, layer cakes, parbaked bread, quartersheet iced layer cakes and iced decorated cakes. “When this plant was built, it was the tonnage center for the company, and it still is,” Mr. Bullion said.

The main impetus to invest in Country Oven Bakery began September 2009, when Mr. Hipenbecker and Mark Fertitta, project engineer for the bakery group, took a cue from Mr. Kaufman and started examining Kroger’s network of manufacturing operations. The team completed a comprehensive capital analysis report in November. “When we looked at the entire network of manufacturing plants, we saw we were already producing cakes at a high level and with tremendous quality,” Mr. Hipenbecker said. “The geography was right, the distribution was right, and we had available property. So everything fit when we looked at it.

“The expansion then received the green light in December,” he continued. “When you consider the magnitude of this project — the building addition and the amount of equipment that’s going into it — we worked quickly to pull together the scope for the project and its preliminary equipment needs and get cost estimates on that equipment,” he said.

BUILT•IN CONTINGENCY PLANS. The new highly automated cake line will allow Country Oven Bakery to become Kroger’s “center of excellence” for cake production, according to Mr. Hipenbecker. Presently, the bakery’s production lines create a gamut of iced cakes that can be finished off by decorators at the instore bakery level who personalize them for birthdays and other special occasions. At the Bowling Green operation, the new line will provide a quick return on Kroger’s capital investment by producing those longer-run items at a greater speed while the existing cake line will focus on labor-intensive, shorter-run products. Moreover, Kroger is shifting cake production from its Indiana operation. In all, 35 jobs will be created when the line starts up production next year. “Keep in mind that this is an addition to this plant,” he said. “The other cake line will still be here. We just found the opportunity to add capacity with higher throughputs with reduced labor.”

With the expansion, the Bowling Green plant will be around 240,000 sq ft. The addition includes 18,000 sq ft of much-needed ingredient storage room and frees up space in the existing facility. More importantly, Kroger left itself with multiple options when it comes to production possibilities, including installing a second new production line, even though the company currently isn’t sure what it will be. “During the design process, we picked variations of lines that would make sense to fit into that space,” Mr. Fertitta said. “We wanted to make sure that, conceptually, it would fit in whatever we planned to do. That helped us dial in the amount of square footage that would be dedicated to the ingredient warehouse and the amount of space that we needed to retain for production.”

In addition to providing versatility, the designbuild concept can provide long-term cost savings. Mr. Hipenbecker gave the example of the need to change the location of drains when altering the layout or design of equipment. “In some cases, it may initially cost more to add a drain,” he said, “but if you are doing it before you put the floor in, it doesn’t cost as much if you realize that the leg of a piece of equipment rests right on top of a drain and then you have to move it. In the end, you find yourself saving money on installation.”

In another example, Kroger’s engineers designed the new production area with a walkable ceiling just like the existing Country Oven Bakery has to house electrical lines and other utilities. “Because it’s a blank slate, we are using some intelligence in how we routed the main utility and electrical runs,” said Mr. Fertitta, the primary engineer overseeing the expansion. “It’s a usable space right now. It allows us to expand in the future in an intelligent fashion for what we don’t know without having a mishmash of lines.”

BRIDGING OLD AND NEW. To further facilitate the process, Kroger assigned John Gates, operations project manager at Country Oven Bakery, as the pointman or main liaison to work with the corporate engineering team. Also working with the engineering group are Tim Merryman, operations manager, and Warren Hamaker, plant engineer, among others. “The plant has dedicated personnel, and that partnership between engineering and operations at the plant has been tremendous in my mind,” Mr. Fertitta noted. “Without the combined efforts of everyone and the teamwork and focus that were placed on this project, there is no way we could have ever accomplished what we have done in the time we have done it.”

What makes the bakery unique among Kroger’s vast network of manufacturing facilities is its production of decorated cakes, according to Mr. Bullion. The existing relatively high-speed icing lines require a labor-intensive process with 35 people per shift, but they can produce one decorated cake every three seconds, he said. The semiautomated line applies icing on the top and sides of quarter-sheet and conventional, round double-layer cakes. Then the decorators smooth out the rough edges and apply garnish and topping by hand to add a personal touch. The cakes, including Kroger’s 2-layer caramel iced cake, are then packaged in dome containers, labeled, hand-loaded four to a carton, palletized and placed in the bakery’s 40,000-sq-ft, -10°F ammonia-chilled freezer, which holds less than two weeks of inventory. In addition to directly supplying Kroger’s in-store bakeries, Country Oven Bakery ships frozen cake layers to other manufacturers that specialize in decorating cakes for the company’s stores.

At the Bowling Green facility, Mr. Bullion added, some of the equipment dates back 20 or 30 years and requires strong maintenance and reliance on strict GMPs to minimize downtime, streamline changeovers and even boost capacity over the years. On the roll line, Mr. Bullion noted, the bakery’s maintenance engineers jiggered the obsolete dividers and sped them up to 93% effi ciency. Likewise, the 20-year-old frozen cookie-dough line has been revamped several times to reduce waste, improve profitability and even increase tonnage during the past decade.

EFFICIENT OPERATIONS. To streamline operations, Kroger’s production facilities are linked into the corporate manufacturing efficiency system, which tracks downtime, productivity, waste and a host of other factors, according to Mr. Hipenbecker. Similarly, the company uses a centralized maintenance system. “We are very much involved at a high level on statistical process controls on the automation side for the operators, and we have a very sophisticated maintenance system that’s network-based and links all of our manufacturing facilities,” he noted. “We’re able to schedule out all preventive maintenance practices and procedures. Additionally, all of our facilities have companywide access to spare parts for repairs.”

The SQF-certified Country Oven Bakery also is Sillikerinspected and has received a “superior” rating for nine of the past 10 years, with a high “excellent” score from AIB International during the year that it didn’t get the auditor’s top rating. Sanitation is overseen by manager Teresa Howard. For food safety and to ensure product performance at its in-store bakeries, all Bowling Green’s raw frozen dough products, including cookie dough, are baked off by the QA staff while incoming ingredients are recorded and monitored as a part of the facility’s traceability program. All new equipment must conform to the latest principles of sanitary design, as developed and promoted by the Grocery Manufacturers Association.

Prior to the current expansion, the most recent major project involved the installation of a Rademaker parbaked roll line and modular Mecatherm oven about seven years ago. In 2009, in response to changing market needs, Country Oven Bakery redesigned and reequipped the line to produce frozen baguettes, as well as a variety of French, Italian, hearth and other specialty breads, according to Mr. Bullion.

With the current Bowling Green expansion, one of the largest capital investment projects currently being done by the company, the corporate engineering department has designed in as much versatility as possible. The design-build process for a greenfield project that started with the proverbial blank piece of paper allowed this.

Still, Mr. Hipenbecker stressed, there’s a limit to just how far anyone can see into the future. “We can’t be everything to everyone, but we made very conscious decisions of what we would do with this location or wouldn’t,” he said. “In the end, the system was designed for as much flexibility as was feasible, and that was our goal from the start.” •

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